Market Information for Buyers and Sellers of Toronto area real estate

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Canadian New Home Construction August 2016

New home construction activity in Canada continues to be one of the healthiest components of the national economy. Housing starts have defied predictions of a soft landing, and national housing starts throughout the first seven months of the year have trended around 200,000 annual units (chart 1).

The trend in building permits is only modestly lower at 190,000 units, pointing to continued strong activity over the remainder of the year. Housing starts are now expected to total approximately 195,000 units this year, very similar numbers to 2015.

British Columbia Leads

As with virtually all national economic indicators, there is a big and obvious regional divide in residential construction. British Columbia is the strongest province, with housing starts averaging a record-setting 44,000 annualized units this year, a 40% jump over 2015. While led by multi-unit construction (both condos and purpose-built rentals), single-family home construction also has picked up. B.C.’s residential construction boom extends beyond Vancouver and the Lower Mainland into other parts of the province, including Kelowna and Victoria. As of the date of this article, full impact of the new offshore resident tax, which was announced on July 25, has not yet been assessed.

Continued Strength in Ontario

Multi- and single-family construction also has picked up pace in Ontario this year. However, at an annualized 76,000 units year-to-date, the overall level of housing starts remains shy of a record. Activity remains extremely strong in Toronto, but a considerable amount of momentum has shifted to lower priced localities, including Hamilton, St. Catharines, Kitchener, Guelph, and London.

Alberta Home Construction Stabilizing

Construction activity in Alberta is showing early signs of stabilizing, although at levels well below historic averages. Provincial starts have totaled just 24,000 annualized units year-to-date, their lowest level since 2009, with notable pullbacks in both Calgary and Edmonton.

Activity in most other parts of the country remains relatively steady. There are signs of overbuilding in a few provincial markets, notably in Alberta, Saskatchewan and Newfoundland where home sales have slowed. For the most part, however, there is little evidence of any serious inventory problems.

Despite ongoing high levels of home construction activity, unsold housing inventory as a share of the adult population remains consistent with historical averages (chart 2).Absorption rates of recently completed units remain healthy and stable. The continued strength in new and resale home prices is also indicating a lack of any glut in supply. Historic low borrowing costs, relatively healthy job market conditions and solid population gains
should continue to support housing demand and residential construction in B.C. and Ontario.

Builder Confidence

Builder confidence is being bolstered by strong resale and new home sales, tight supply and rising home prices. The average price of new single- and semi-detached homes has jumped 15% in Vancouver, and 8% in Toronto, over the past year. To the extent that tight supply is contributing to surging home prices in these two high-priced markets, the increase in new home construction is a welcome development. At the same time, rising unemployment,
inter-provincial population outflows, increased housing supply and a soft pricing environment weigh against a near-term recovery in Alberta, notwithstanding rebuilding activity related to the devastating May wildfires in the Fort McMurray area.

Global Real Estate Housing Markets Remain Strong

Continued low interest rates are driving the key global housing markets, in spite of relatively sluggish economic growth and heightened financial market volatility. The IMF has estimated that roughly three-quarters of global real estate markets are experiencing rising house prices. Strength in general has been predominantly in first world countries compared with emerging markets, though gains are being seen across all regions. Two notable exceptions are Brazil and Russia, where deep local recessions, rising unemployment and high interest rates continue to put significant downward pressure on housing demand and prices. Canada, Australia, Sweden and the U.K. are among the top performing residential markets internationally.

Tightened Lending Rules

The continued and ongoing rapid pace of house price appreciation has prompted authorities to further tighten mortgage lending rules. This includes increased down payment requirements (Canada), higher investor lending rates (Australia), stricter mortgage standards (Sweden) and new taxes on second homes and rental properties (U.K.). U.S. house prices continue to trend up amid strengthening sales and tight inventory. Solid fundamentals — pent up demand, a robust job market and rising household formation — should extend the recovery even in the face of moderately higher borrowing costs.

Affordability

Affordability is still acceptable in most countries surveyed, with average prices still about 20% below the 2008 pre-crisis peak adjusted for inflation, and the U.S. Federal Reserve engineering only a gradual firming in policy. Housing markets also are gradually firming in the euro zone. Average inflation-adjusted house prices across the region edged up 2% over the past year, a modest but defining turning point after several years of decline. However, conditions remain uneven, with strengthening labor markets supporting solid price gains in some member countries, notably Ireland, Spain and Germany, while other markets, including France and Italy, continue to languish alongside a weaker economic recovery.

Latin America and Asia

The majority of property markets in Latin America and Asia are showing moderate activity and price growth. China’s housing recovery is broadening, with roughly two-thirds of major centers reporting annual price growth through April. However, authorities face a tough policy balancing act in their attempt to cool skyrocketing prices in top-tier cities while at the same time support the nascent recovery in oversupplied smaller centers. Foreign capital inflows also are contributing to the recovery in global property markets, as investors search for geographical and asset diversification, and higher potential returns. This extends not just into residential real estate, but commercial properties and agricultural lands as well. A large share of these flows has been destined to the luxury property market in top-tier cities. Global real estate market sentiment remains vulnerable to shifts in the economic and financial climate. Sales of high-end luxury properties have cooled in a number of large markets over the past year, including New York, Hong Kong and London. The softening in demand mirrors the economic slowdowns in China and the Middle East, and deep recessions in Russia and Brazil, all key source markets of luxury foreign buyers. Affordability also is taking on added importance, with relatively lower prices and favorable exchange rate conversions benefiting some second-tier cities, including in Canada, Australia and the euro zone.

Market Predictions for Mississauga – Bull Market Continues

The local Canadian real estate market for 2015 performed exceedingly well, and ended up being the second best year in history. We review the City of Mississauga, a large and diverse suburb of some 760,000 people, located just west of Toronto, and provide a forecast for 2016.

Mississauga is a relatively new area abutting the western edge of Toronto. The City of Mississauga was in fact only created in the 1970’s, when several small villages were incorporated into a new amalgamation. Since that time, Mississauga has grown tremendously, and has become a magnet for people from all over the world, due to its attractive lifestyle, dynamic economy, and welcoming diversity. The real estate market has mirrored that success. During 2015, the market rose 9.5% in prices for freehold properties – i.e. detached properties, semi-detached homes, and freehold townhomes. The condo market, specifically centered around the Square One shopping mall in Mississauga, showed a 6.5% percent increase, still a very substantial rise when you take into account the flood of new condo construction in the area.

Continuing 2015’s Success into 2016

Early signs point to a continuation of last year’s impressive market due to three factors:

Local Sutton Group realtor Randy Selzer provides an explanation of the principles at play here:

There is reason to believe that the three pillars that he talks about are as good an explanation as any, when attempting to understand the strength in the local market. What began as a cyclical bull market in 1996, has surpassed even the most positive market predictions of industry observers, as the real estate market goes from strength to strength. Canada seems to be a magnet for immigration, in spite of its climate, and local real estate markets have benefited from that popularity. Local pundits, having watched the dust settle on 2015, are looking ahead, and they like what they see.

Real Estate Board 2016 Outlook

The Toronto Real Estate Board has published, for the first time, a comprehensive review of 2015 market activity, with an outlook for 2016, covering all aspects of the GTA (Greater Toronto Area) real estate market.

Watch John DiMichele, president of TREB, as he explains the inaugural Market Year in Review & Outlook report. There is a lot of data available in their publication, with forecasts for everything from suburban resale homes, to downtown condos. Two versions exist, one for realtors, and one for the public. Both were released on January 18, 2016.

Report Highlights

The report provides information on the following:

– after a record setting 2015, 2016 is predicted to be a strong real estate market going forward

– house prices will continue to trend upward in 2016

– over 12% of the Greater Toronto Area population are planning on purchasing a home in the next 12 months

– a majority of buyers are planning on putting 10% per cent down or more on their purchase

– includes an extensive section on new home construction

– between 96,500 and 105, 000 home sales are expected to be reported through TREB’s MLS system in 2016.

– indepth analysis of the overall competitiveness of the Greater Toronto Area, and also the Golden Horseshoe Area, are provided